Student Loan Debt Reduction Puts Homeownership Within Reach

In late August, President Joe Biden announced targeted student loan relief for some low- to middle-income borrowers. With more than 45 million borrowers owing a cumulative $1.6 trillion in federal student debt, this initiative could help many struggling families make a mortgage down payment, save for retirement, and start small businesses. 

The Biden-Harris Administration’s Student Debt Relief Plan

The final pause on federal student loan payments and interest is scheduled to end on December 31, 2022. As normal repayments resume, the student loan debt relief program will make many borrowers' debt load more manageable. Read the highlights of the plan here. 

Student Loan Forgiveness Shortens the Path to Homeownership

Large monthly student loan payments prevent many lower- to middle-income borrowers from building wealth and investing in their future. The student loan relief program will change that by freeing up income and giving more people the opportunity to become homeowners.

Forgiving $10,000-$20,000 in student loans will have a significant impact on the monthly debt load for many people. Less debt and fewer monthly financial obligations improve potential borrowers’ debt-to-income ratio (DTI), which can make it easier to qualify for a mortgage.

You can start your application here: https://studentaid.gov/debt-relief/application 

Additionally, the money saved on loan payments can be reallocated to mortgage down payments and monthly payments. This reduces financial strain on lower-income borrowers and reduces the risk of loan default.

How the Student Loan Relief Initiative Benefits Different Types of Borrowers

Millions of people have postponed buying a home for years because the burden of student loans made taking on additional debt impossible. With relief on the horizon, homeownership is finally within reach for many of these borrowers.

Here is a look at three groups of homebuyers who will benefit the most from the student loan relief initiative.

1. First-time homebuyers

Between the mortgage down payment, closing costs, and monthly mortgage bill, the prospect of homeownership can be daunting for first-time buyers.

However, borrowers who receive student loan debt relief under the new initiative will be in a good position to move forward with buying their first home. With significantly reduced or eliminated student loan balances, borrowers can set aside money for a down payment or closing costs. Additionally, less debt means better DTI, which helps mortgage applicants qualify for lower interest rates and reduces monthly mortgage payments.  

Learn more about the best mortgages for first-time homebuyers.

2. Military personnel

Current and former military personnel and their families may qualify for special home financing through a VA loan. These mortgages don’t require a down payment or private mortgage insurance, but there are still expenses that must be paid at closing.

The student loan debt relief plan will enable more qualified service members to purchase a new home by freeing up money that can be reallocated from student loans to closing costs, the VA funding fee, or to pay down debt and improve DTI.

This money could also be set aside for a mortgage down payment, though it isn’t necessary for a VA loan. However, putting money down will reduce the overall amount of the loan, which will lower your monthly payments

Learn more about VA loans.

3. Less-qualified borrowers

Borrowers with high student loan debt may struggle to keep up with other bills and expenses, resulting in damage to their credit score. Mortgage lenders lean heavily on credit history when considering loan applications, so any issues can make it difficult to qualify for a mortgage.

If debt has hurt your credit score, the student loan debt relief plan can help you improve your credit profile by increasing the amount of money you have to pay down debt. Even without perfect credit, a better DTI will help even less-qualified buyers get approved for some nonconventional mortgages.

Home loan programs, such as FHA, VA, and USDA loans, have less-strict credit requirements and low to no down payment options, which put homeownership within reach for borrowers with less-than-ideal credit scores. 

Learn more about nonconventional mortgages. 

Ready to Make the Move to Homeowner?

President Biden’s student loan debt relief plan is putting the dream of homeownership within reach for many Americans. If you are a first-time homebuyer or you aren’t sure which type of loan is best for you, we can help.

Contact us and one of our experienced mortgage lenders will be in touch to walk you through your options. 

If you’re not quite ready to speak with a mortgage lender but you want to know what to expect during the homebuying process, download the “First-Time Homebuyers Checklist” for a step-by-step guide to buying your first home.